BiggerPockets Money Podcast - 543: Finance Friday: How the “Middle-Class Trap” Stops Your Early Retirement

Episode Date: July 5, 2024

You dream of retiring early, but you’re stuck in the “middle-class trap.” You’ve built up a solid net worth, maybe own a rental property or two, and on paper, you look like you’re on track to make it rich. But in reality, you don’t feel that way. With all your wealth tied up in home equity or retirement accounts, your “early” retirement may have to be pushed to the traditional age of sixty-five. So, how do you free up some of this wealth so you can start accessing it today to retire early tomorrow? This is the question Emily and Justin are struggling to answer. They’ve gone from nothing to a substantial net worth—$1,500,000! With big dreams to travel internationally and retire from their jobs in twelve years, they’re wondering if they can still make it to early retirement AND if they can do so while enjoying life a little bit more today. Mindy and Scott offer some unconventional advice for the personal finance space, but it may help this couple feel more secure so they can start living today instead of waiting to finally retire in twelve years! Support today’s show sponsor, BAM Capital, your path to generational wealth with premier real estate investment opportunities!  In This Episode We Cover The “middle-class trap” that stops even millionaires from retiring early Why you should NOT sacrifice everything now just to retire a few years earlier  What to do when you struggle to spend more, even on the things you love Paying off your primary residence early vs. keeping a low-interest mortgage (and what to do with the money instead!) Putting your pension into your net worth calculation (and how it can get you closer to FIRE!) Roth conversion ladders and the smart way to save significantly on taxes in retirement  And So Much More! Links from the Show BiggerPockets Money Facebook Group Network with Other Investors on The Path to FIRE Through the BiggerPockets Forums Finance Review Guest Onboarding Join BiggerPockets for FREE Mindy on BiggerPockets Scott on BiggePockets Listen to All Your Favorite BiggerPockets Podcasts in One Place Apply to Be a Guest on The Money Show Podcast Talent Search! Find an Investor-Friendly Agent in Your Area Find Investor-Friendly Lenders Property Manager Finder Apply to Be a Finance Friday Guest How to Access Retirement Funds Early How to Estimate Capital Expenses On a Rental Property See Mindy and Scott at BPCON2024 in Cancun! Ramit Sethi’s Money Advice for Couples: Live a Rich Life, Together 00:00 Intro 02:19 Frugal Beginnings  07:58 Big Retirement Goals  13:48 Financial Snapshot  14:50 Struggling to Spend Money? 24:18 Can We Retire in 12 Years? 36:45 A HUGE Extra Income Source  45:46 Loosen Up Your Budget! 52:13 Retire Even Earlier?  01:02:09 Emergency Reserves for Rental Properties  01:07:51 Don't Get Caught in The Trap! Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/money-543 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [e-mail] Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Finance Friday guests have three rentals and are looking to retire in 12 years. But they're caught in that famous middle class trap. So Scott and I are going to see what's possible with their situation. Hello, hello, hello, and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen. And with me, as always, is my strawberry-loving co-host, Scott Trench. That was a very good intro, Mindy. Thank you very much.

We've got the goal here at Bigger Pockets of creating one million millionaires. You are in the right place. if you want to get your financial house in order because we truly believe that financial freedom is attainable for everyone, no matter when or where you're starting, or whether you are caught in this so-called middle-class trap. Today we're going to talk to Emily and Justin. Emily and Justin live in Colorado, and they both earn around $85,000 a year, each bringing into a combined household income of just close to $200,000 when factoring in side hustles on top of that. And they've got a net worth of about $1.5 million, but they feel like they can't access it to actually live the life of their dreams.

And unlike many, they have a very crystal clear and awesome perspective, potential life of their dreams. So Mindy, I'm super excited to get into it and talk about the ways to unlock all of the incredible value that they've created to help them get to their goals. Yes. If you are listening and you are on your way to financial independence, I am almost going to guarantee that you will identify with at least one of the issues. that our guests are having today. All right, before we get into today's Finance Friday review, a special thanks to today's show sponsor, Bam Capital, your path to generational wealth with premier real estate opportunities. See why over a thousand investors have invested with Bam Capital at

Biggerpockets.com slash bam. That's Biggerpockets.com slash BAM. If you enjoy today's finance Friday and have some questions, you maybe listen to the DIY Finance Friday, but you want Mindy and I to disagree with one another and have some on, on camera. our fights, please feel free to apply at biggerpockets.com slash finance review. Some of our best finance Fridays come from long-term listeners who are struggling with problems just like Emily and Justin's. And we would love to dissect that, debate it, maybe give you some ideas that hopefully help you. So again, that's biggerpockets.com slash finance review if you're interested in being on a finance Friday. Without further ado, let's bring in Emily and Justin. Emily and Justin, welcome to the

Bigger Pockets Money podcast. I am so excited to jump into your numbers today. Well, thank you. you for having us. We're excited to be here. Yeah, thank you, Mindy and Scott. So before we jump into those numbers, Emily, can you share a little bit about your journey with money? Yeah, sure. Well, I grew up actually in the small town that I live in now. My dad was a pastor. My mom didn't work most of my childhood, so we probably were low, mid to lower income. And I, I'm I just had a really wonderful childhood. I never felt lacking. We did a lot of fun things.

I got to play sports and do piano lessons. One thing that I think helped with that that's really different now. Where we live now has a ton of wealth. But in the 90s, nobody here had money. So it was really normal just to camp for vacation or, you know, go school, close shopping once a year. So there's never any feeling of like we didn't have enough. I think my parents really taught me to live within my means.

You know, I don't know if they made the smartest money decisions, but I don't think they ever made bad money decisions. And that's something I really value right now is to live within the money that you make. And I'd say the other thing that they did really well, or at least it's important to me, is to taught me to value experiences. I remember we used to say, well, you're either a car person, a vacation person or a house person.

And we always drove old cars and our house was pretty modest, but we really, really loved spending time together, going out in nature. And that is like at my heart. What matters to me is to spend money on experiences. On the flip side, you know, they didn't teach me any anything advanced. You know, I didn't learn about the stock market and compounding interest. And those are things I've had to learn from Justin.

and just on my own journey. But overall, I think they did a really good job. I'm happy with how I was raised in that way. For them to teach you to live within your means is the best gift possible. Because there are so many people who grew up and they're like, oh, we don't know how we're going to pay for it. We'll figure it out later. Or we'll just put it on the credit card and continue making the minimum payments.

So that is a really, really great gift that they gave to you. Shout out to Emily's mom and dad. Now, Justin, let's look at your. experiences with money? So funny. I am also a preacher kid, which is wild that the two of us found each other. And on a side note, we found each other at jury duty of all places. So yeah, that's wild. That's another story for another time. But yeah, similar. I grew up in Colorado, not in a mountain town, but along the front range. And my dad worked as a preacher. My mother worked as a mother raising four of us kids. Money was tight.

There was not in abundance. We were the type of family that clipped coupons and did not eat anything fancy. I don't remember going out to eat as a child. So when we, I realized really quick as a as a small person that if I wanted something, I had to go find the means of getting it. So I had a paper out starting at the, in second grade, all the way till I was 16 and able to get a guess real job. So my parents did try to instill some financial stuff in me. Saving was always a big topic, so much so that sometimes it drives me crazy and can be a bit of a trigger when Emily and I get a little too in depth with finance conversations. I think we're really wise with our money and sometimes I think we forget to have fun with it. The truth is revealed.

But let's see, I remember my dad encouraging me and influencing me to start a, a retirement fund when I was 18 and under the premonition that if I put $1,000 in there a year for the next 10 years, that by the time I retired, I would be a millionaire. And I'm not quite sure that's really the case. He had some impressive spreadsheets at the time that tried to convince me otherwise, but I have not seen that 10 grand get to that point yet. But needless to say, it was a good positive start. On top of that, with the limited funds we have, had my parents were able to put enough money away for me that when it came to college, they kind of laid it out and said, hey, here's a path or a route that you can take. And that is to live at home during college and go to your first two years at a community college and your second two years at CSU. And we think you can walk away from this without owing any money. And sure

enough I did, which I think is quite an accomplishment these days. Well, that is a gift that your parents gave to you. So let's shout out your parents too. Thank you. Do you know what your retirement goal is, numbers and timeline and how did you come up with this goal? Oh, do we ever? Well, honestly, starting by listening to your podcast was a really big part of this journey I've been on. So thank you, Scott and Mindy. Thank you for listening. Yeah. And then I also have, I really, really liked listening to when Rameet came on your podcast.

And I asked Justin the question, what is your rich life? And we'd never honestly asked each other that question before. You know, we have three kids. Life is just like wildly busy. But as we're in our 40s, I'm almost 40. He's 46. I think we just realized that that time is sooner. than it's not. So I mean, this is one of the main reasons we're here. Justin can retire from his

government job in about 12 years, maybe sooner, maybe later, but 12 years is what we have in our head. I'm seven years younger and I just like so, so deeply want to be able to do that with him, whether that's a full retirement or we're just, you know, working at the library once a week. I don't know, but the thought of, you know, me punching in the clock for another seven years, I just can't do that. So I think that's, and I think we're both more or less on that same page. Like, what can we do in 12 years be as financially independent as possible that gives us just a lot of freedom outside of, these traditional office jobs that we're actually really happy with for the moment.

Well, I just wanted to, because you guys put in, you know, I think some of the best and clearest answers I have seen in terms of what you want. Like, you're so clear from what I can tell and what you want, right? And this concept of love of the outdoors and time in nature, I'm picking up time with your children in nature as well as part of that. I'm picking up. themes around seasonality as it relates to what you want to enjoy there in there. And again, these are questions you provided in advance. But could you talk through some of those specific, like your vision is so clear. Could you crystallize a little bit more? Because I think that will play into, I predict, it will play into the way we talk about the strategy coming forward

on how to realize that. Well, I have a spreadsheet. Not shocking. Well, we only have kids in the house for 10 more years. And that, again, it's like really hit us that seemed like such a far-off thing and now it's here. So we have listed our goals, our health and wellness to spend time in nature, to prioritize experiences that build community. We have a really fun town with a lot of great friends and doing things with that group of people means a lot to us. We'd like to be able for our kids to continue to take part in activities like soccer or music lessons. Nothing extreme, but we don't want to have to say, you know, you can't do that. I personally want to internationally travel every single year.

And Justin loves the river and would love to go see more rivers. So that's, it's very specific. Well, these are awesome. One of the things I want to call it specifically is you asked a question in the prep work here that says, can we be snowbirds? We'd like to live in Central America from February through April every year and work on our Spanish. We also want a sprinter van for domestic travel and adventure.

And I wanted to ask a specific question now. Again, I may be completely wrong. This may not come up at all. But February through April in Colorado is a really interesting seasonal opportunity and time to get out of Colorado. You know, with that. So walk me through what the thought is on that particular bullet point. I just want to see if that – I don't know if that plays into something to the future. I just have a hunch it might.

Well, I mean, our hope is that we could find a means to do. like a house trade with someone for that length of time, that we could find someone that was inspired or wanted to be in the snow next to a ski resort and maybe had a place somewhere else and we could swap places for that point in time. And that would work out advantageous to us. I don't really think we're interested in like owning a separate place in another country. that sounds a little stressful for me. But that's where my head is. Well, I just hate Colorado in the spring.

I just like the wind, I just can't take it. The thought of when we 10 to 12 years when our kids are out of school, if we could just leave, oh, I would love it. And I really want to learn Spanish. I'm on Duolingo Day 500. So, yeah, so I just like that, that's maybe a little more in my dream, but our tolerance for the spring weather is getting less. Well, we need to get into your numbers. I'm sorry to take us down the rabbit hole. I just wanted to ask that because most people visit Colorado in February, March, and early April. And so I see a huge opportunity there, depending on proximity to mountains and those types of things. But that's all. That's all. All right. Well, let's run through your numbers really, really quickly. We have an income of 16.

thousand, $800 a month, expenses of $7,700 with a difference of $9,000. So you're clearly not having an issue on the income or the expenses side. Yay, for you, you're doing great. Deats, now hold on, this is going to sound scary, but it's not. Debtes are $707,000, but that's all mortgages. That's not credit cards and student loans and all of the things that sometimes come into play here. That's mortgages, and frankly, I don't think mortgages count as debt, but that's just me personally, and that's three mortgage properties. Assets total 1.5 million. So I think you're on a really, really good track. I have a ton of thoughts based on what you just said. And I can't get into them right now because we need to take a quick little break to pay our own bills. But when

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money. All right, and we're back. Just a reminder, we have, we have a net worth of just shy at $1.5 million and a spread between income and expenses of about $7,500, $8,000 a month. So that's about $85 to $100,000 a year and after tax accumulation. So if I just take your goal, and let's, let's use 10 years instead of 12 because I don't want to do the mental math. We've got $800,000 in cash coming into your lives in the next 10 years if we stay the course, which puts your net worth at $2.3 million, assuming no investment returns. Once we layer in investment returns, we could probably double that number or come close to it at the highest level. Does that sound, have you guys thought about it at that highest level prior to this call at all? And how does that, have you modeled it out

in any type of projection model here? I mean, that just feels, like not how our life feels. It feels like our expenses every month feel stressful. Like I hear what you're saying because, you know, I like I just feel like we should only live off of the income from our W-2 job. So adding in this income from rentals or the side gig income that Justin has at all. It just doesn't feel like it counts to me, and I know it's supposed to. So those numbers don't resonate to me because all I think about is like, should I buy strawberries this week? You know, that's like how my brain works every single second of the day.

I don't know. Do you feel the same? Yeah, I have not looked at the upper end of it. My brain goes to once we retire, what could we have on a monthly basis? and will that meet our means? And I feel pretty comfortable with where we are right now, but I've never ventured in my head above that number. Well, that's where Scott and I come in.

Although I feel like I'm in your marriage too because I am the exact same way. I also don't really... I've been struggling with, oh, can I buy strawberries this month? Even though, yes, I could buy strawberries. I can buy strawberries every single day. It's tough to go from... the saving mindset to the spending mindset. And in your application to be on the show, you had a

question about your budget. You said, our monthly budget is tight and we could easily spend an extra $500 a month and feel less stressed. So my question to you is, what is preventing you from spending that extra $500 a month? Because that's only $6,000 a year. And when you're saving $73, $75, $80,000 a year, of course, $6,000 is nothing. to sneeze at. But if it's going to make your life so much less stressed, what prevents you from spending that? And I have a parallel question of that, which is, is that actually happening? Is $7,000 going into savings and investments in a literal sense? Like, has that actually averaged out to $40,000 in the last six months, for example? Or is that not happening? Is there

incongruity between what the numbers in your spreadsheet are telling you and what's happening in your bank account. Well, okay, so that we invest through like the traditional Ross 401ks. So we do that maybe probably at a higher rate than average. Then we have, Justin has kind of some side hustle money that we've only had for like two and a half years. So it doesn't feel like we can count on it necessarily. That currently has just gone. We really need a bit of a house remodel. Our house is very old. We bought it 16 years ago on like a newlywed Home Depot budget remodel. And like, it's just really time. So we, we have taken all his side hustle money and not spent a penny with the intention of doing some bigger projects this fall. And then that rental income. So what we

did for two years after we bought our two rental, well, we have three rental incomes. One of them in our backyard as an ADU and two single family homes on the Western slope. So at first, we cash flow about $1,500. So for about two years, we just were like, we're snowballing the debt. We started putting it into the mortgage. And then we kind of read, well, that's not always a good idea. And we have really low interest rates. So then we stopped doing that.

And then we just saved it in a high yield savings. So we've been doing that for, I don't know, a year. And I'm really glad we did because I think what we need. because I think what we needed was like an emergency fund for the rentals. And now we're back to like, what do we do with that rental cash flow? Do we go back to snowballing the debt? And then what do we do with Justin's side gig money now that we are done saving for this house remodel?

And I just want to add. So the other thing in there, Scott, is the buckets. My wife loves to make buckets. And so it's not like all in one savings bucket. Like there is savings for a new car. There is savings for the next vacation. There's savings for the vacation after that. There's savings for gear.

There's probably 30 buckets. So it gets spread out little bits out of time into each one of these things so that when the right time comes, it's there. and it's not going on a credit card. And we feel like we've earned it and we deserve it at that point. Okay. So I want to go back to my question. What is preventing you from spending that extra $500 a month?

Because there's always one more bucket. Yes. I mean, it's a real, like, I don't want to say it's a problem. I have some probably weird money psychology. And it feels almost like a moral failing to go. from like we were saving this to now we're spending it. So I just, I own that. I do think, honestly, this is what my, one of my main goals talking to you.

If I can feel, if we can feel like, all right, we are on track to do what we want to do in that 12-year time frame, then I do think I can be more comfortable saying, let's just take that extra $500 and stop stressing about the socks that I need to buy or the strawberries. I think I can do that, but I, I, that 12 year goal feels so important to me that I'd almost rather, like I'm, I realize I'm sacrificing or stressing maybe unnecessarily to get to that goal. And I should probably work on that. Okay. So here is my thought. We are on what, episode 543 is this episode.

I've been talking about people about money for a long time. And we have had numerous people tell us their journey with money started from $0 net worth or even negative. And in 10 years, they got to their retirement number. Their retirement number might not be the same as yours, but you're not starting at zero. You're starting at 1.5 and you're giving yourself 12 years. So I'm going to go on on a limb here and say, you're on track to hit that in 12 years.

However, it's super easy for me to sit here and look at your numbers and say that. I want you to do an experiment. And maybe it's not 500 right off the bat. Maybe it's only $250. But take that $250 out of your $9,000 a month that you're saving and throw that into your miscellaneous socks, strawberries, whatever I want to buy. here is $250 or start off with $50 or $100 or whatever. And you can spend that freely and see how you feel after a month or two.

If a month or two makes you so anxious about this extra money that isn't going into your investments, then pull it back. But what I have learned is that $250 over the course of $1.5 million net worth isn't going to make a big debt and sometimes reframing the way you look at it can be very helpful. Again, I'm struggling with the same problems, so it's not like I'm perfect at this. But those are some of the things that I have been able to get over my small dollar spending hump by just saying, well, in the course of my whole net worth, does this matter? And $250 doesn't matter against $1.5 million, in my opinion. Does that make sense? It totally makes sense. In fact, I mean, Emily has been

trying to do that a little bit here and there by just throwing a fun money pot for both of us. Emily gets $500 for fun money, no strings attached, go by those things that keep popping up on the computer and sucking you into advertisement-wise. And the same goes for me. And it feels good. It does feel good. But I still just don't understand how we retire in 12 years. I'll only be 52.

So Justin has the pension coming, but it's not even close to enough to live on. And so I think that's where I'm just so curious. And especially because you all are real estate people. If you don't have your real estate paid off, how is it really that helpful for financial independence? You got it, right? So here's the issue with your situation is you're $1.5 million. You're a coast five. Right.

That's the phrase that I think you need to internalize here is like today, you're coast five. You don't have to accumulate any more wealth to be worth 2.2 million easily adjusted for inflation. If your assets don't accrue anything past, if all you do is pay off those rental properties in your mortgage, you got a net worth of $2.2 million, adjusted for inflation easily with the real estate and then probably plus some with the stock market. But what your situation here is, if I break it down, you got $591,000 or $600,000 of rounding to the nearest, you know, $10,000. there, the round number, in your retirement accounts, which you're in practice not going to access. 50,000 of that is actually in your 529, so I wouldn't account that. And then you've got 500K, 400K in your primary residence, which is also, you know, not helping you actually spend your cash flow here. And then the remaining balance is in your rental properties, right, which I think, based on what

I'm hearing you say, maybe are starting to produce reliable cash flow, but you haven't adjusted to that reality if that is reasonably fresh. How close am I in the diagnosing the problem here? Yeah, I mean, they reliably cash flow $1,500. Okay. That feels really good to not access. You know, they cash flow more than that, but then we have to buy a new something or do this or do that. So like we truly, I believe this going forward unless something catastrophic happens, the cash flow 1500 that we can do something with. What that is, I don't know. Awesome. So, but, but, but am I, am I reasonably expressing the high level problem that you're, you just voiced? Is that, is that the way, is that the way to throw that back to you? Yeah, yes. Like, most of our network doesn't feel accessible whatsoever. It still feels like we get a paycheck, we get two paychecks, we spend all of it. We get another two paychecks and we spend all of it. So like, I see the idea of this net worth, but in reality, it still is like the strawberry problem. Yeah. It's not a number in the bank.

I completely agree. And I think that that's the trick here is what are we going to do about it going forward? And the way I see the situation here is you've got $16,000 a month coming in, 8,000 spread between income and expenses. Where you choose to put that $800,000 times 10 years is going to make all the difference into how you feel about that situation at your retirement level. So if all of that goes into your 401K, for example, or more levered real estate, you're going to have a much bigger number, but the same general problem. I had somebody reach out to me a few months ago who's worth $3.5 million asking me, how can I generate $60,000 in passive cash flow, right? With the similar level. So that's, I think, the thing there is you are on track with your current approach to continue crushing the net worth goal.

This thing, this portfolio should roughly double every seven years, Rule of 72, give or take, how our market conditions go. And you can then multiply it to a big number. But I think that that's the question is you're not going to feel good about withdrawing that portfolio in 10 years unless there's a different asset allocation decision to be made. And that involves hard choices. So some options that are relatively unpleasant here, hopefully we can find better ones, would be pay off the mortgage. So why is that unpleasant? I'm so curious. They're really love it's not unpleasant. It's just it's just bad math. Like I'm a spreadsheet guy. So I don't like paying off three and a half percent interest rate debt. And I'm sure you guys don't like that either. That our primaries at three and our rentals are at 3.9. Like I hear that. It's not good math. But if they're paid off in 12 years, that's like money to pay for our life. Well, it does two things for you. Right. One is your mortgage payment is what? What's your P&I?

For our primary? Yeah. It's a giant. It's like 20. $2,600. Okay, so $2,600 times 12 is $31,200 per year. And then if we do the 4% rule, and you multiply that by 25, you need an asset base of $780,000 in order to retire early and feel comfortable withdrawing the 4% that would pay off your mortgage. So that I think is that that's what you're, I think that's a way of articulating. Were you able to follow that? I think, I, I think, I, explain it kind of weirdly here. If we didn't have our house paid off, we would need $780,000 withdrawing at 4% to cover our mortgage, right? Just your P&I, if it's $2,600. Yeah. So if you pay that off, you can reduce your early retirement number by that amount. Now, it doesn't work like that because it's not a permanent thing. And there's all these reasons why that doesn't work. But in terms of how you're going to feel about it, I think that's what, like, that's one, that's a really

compelling reason to pay off the mortgage. And why I'm like, if you're buying a house new right now, I'd pay off the more and you're trying to retire early. At 8%, I think it's a no-brainer in many cases, you know, for all but the people who are actually going to be working on their business or in a business that can drive exceptional returns, pay off the mortgage on there. Mindy is about to disagree with me. Go ahead, Mindy. Yes. So at 8% I totally agree with you. At 3%, I don't agree with paying off the mortgage because I can put that extra money that I'm not putting towards my mortgage into the stock market and generate more returns, a higher return than my 3% mortgage costs me. So that's what I do. I actually had a paid off house. We had to pay for it in cash

because the sellers needed a quick sale. It was one of the reasons why we were able to negotiate such a low rate. So once we were here for a while, we cash out refiners. We cash out refiners. And I pulled every dime I could out of this property because interest rates were so low. And I know I can do more. I think we got like $350,000 out of it. I could do more with that money in the stock market. And in fact, at one point, Carl was tracking this. I don't know if he still is.

We were up, I think in six months or eight months, we were up $100,000. This was in 2020 when the market was like going on a tear. But you can make more money in the stock market. instead of just putting, like when you pay off your 3% mortgage, you're getting a 3% return. However, I am comfortable with mortgage debt, and I have a hybrid solution. If you don't want to continue to have your mortgage, make your minimum mortgage payment, and then any excess that you are going to put towards your mortgage, put it in a high-yield savings account. It's liquid, it's accessible, anytime you need it.

once you have a balance in the high-yield savings account that matches the balance on your mortgage, you have a choice. You can pay off your mortgage and be debt-free. Or you can see it still growing in the high-yield savings account and say, I'm going to keep it in there. I'm comfortable with this mortgage for a little bit longer. But then when you need the money, if you need that money, you don't have to go get a helock, which is like 9% right now. I'm going to disagree with Mindy here, right? So this is a good debate here. Here's the thing. You put 347 in an interest-bearing savings account. You're going to generate four to five-and-a-quarter interest, depending on how good you are at constantly maintaining the interest. And that's just for now, right? That could go up or down, depending on how things go. And then you're going to pay income tax on that simple interest.

So your yield after the fact is going to be like 3.2%. So you're actually going to get a negative spread because you're probably already claiming the standard deduction. and you're not claiming your home mortgage interest against your tax bill. So that's where I'm like, again, and I come back to the higher level point here, of course there's an opportunity cost. If you pay off that mortgage instead of investing today in the stock market, you're going to have an opportunity cost of the spread between, let's call it, a 10% yield and a 3.9% on your mortgage balance. Like that's why I struggle to do it, right?

Like on a rental property or whatever, right? It's because of that concept. But again, like if we go back to your net worth challenge, I just did, I said, let's take your $1.5 million net worth and let's multiply it by a 7% annualized return, which you should get with your leverage right now on your rental property portfolio and your stock market investments, right? And you multiply that by 10 years. Your net worth at the end of this period is $2.95 million. And that's before you add any of the savings you're going to put in and your pension, which we still have to talk about here. So that's your net worth in 10 years. If historical trends, now that we could go nowhere in 10 years.

It could go down, right? There could be all these different scenarios. But that is the historical average applied to your situation. So I don't think you have a net worth problem. I think you have a way you feel about your net worth and I want to access it problem here. And that's where I think like that's where I'm on the side of like, I'm not saying you should pay down your mortgage. I'm saying that is a viable option in your scenario that would be congruent with your goal. We still have more to explore here, but I don't want to rule it out on that.

So that's my debate with Mindy on this particular point. So I just want to add, Mindy, the hybrids option that you presented, that's kind of where our head is currently. Rather than trying to snowball our mortgages with the extra money is to set it aside, put it in a high yield. and five, 10 years when that money, you could either transition it over and pay off a mortgage or you could do something else with it. We have that opportunity. We have that open door. But to Scott's point, we ran so many calculations.

And if Dave Ramsey's mortgage payoff calculator is correct, I think it was kind of neutral. Like I think once we paid income tax on whatever we gained in a high yield savings and then just, you know, paying. off the debt, it felt it ended up being the same. Right. And so then Scott brings up good points that, hey, you aren't really winning here in the end. Take a chance. I think you either got to invest for growth or pay it off. For me, like I, I am not on team hybrid approach, which I love. I love the different opinions here. That's a respectful disagreement, not, you know, on that, but that's why I'm, I think it's either go after the big returns or the paid off home is so huge from a like a how you feel about things perspective um it reduces like that again it

just reduces that drawdown the you have to generate $2,600 a month less in income if you were to do baristafy at that point it just makes everything so so much easier and there's huge advantages to it again and this is a problem that millions of tens of millions people are facing right now right is they're stuck you can't what are you going to do sell the rental property with a 3.4% mortgage and then go put it in stock market. You're going to put it in another rental property and take on a 7% new mortgage. Like this is just how, like I've talked to a lot of people. They're all stuck in this kind of situation. That's how I feel about some of my rentals, right? I mean, the numbers make sense. Like if we could put it in the stock market at 1,500 a month

at 7%. I mean, that obviously makes a ton of sense. It's scary. Our life feels just really complex. Yeah, it's just kind of scary. I think that there's another major piece to the puzzle, maybe a few pieces of the puzzle, one of them being this pension that may create a lot of optionality. Let's talk about those right after the break. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your taxed refund can make the biggest impact.

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And one of the big ones I want to talk about is the pension because this isn't like your net worth is 1.5 million, but it's more than that. Because if you were to retire, and I would love to understand that ends and outs of this a little bit better. But I think if you were to retire today, you'd actually have more than what we have listed on your balance sheet, perhaps considerably more. So you want Justin to describe how the pension works? Yeah, either one of you guys, yeah. So I have a pension through the government. It's called the Thrift Savings Plan or the TSP. Most federal and government employees have this option.

As it stands right now, I put away 15% of my income, and then the government matches another 5%. And that, so in essence, 20% a month. So that's the Thrift Savings Plan, and that is the government's version of a 401. K. In addition to that, I have a pension that I will get as well. So the pension is math-wise, my number of years with the government times 1% over a year. Times your highest three-year salary averaged. So if it was an average of $100,000 for the highest three years, it's 100,000 times 30 years, times 1%. And that's from retirement through death.

And that would be 30,000. And is that inflation adjusted or is that a fixed number? That is inflation adjusted. So if we got to $100,000 a year base times 30 times 0.01%, that would be a $30,000 a year, inflation adjusted benefit. And if we multiply that by 25, or 4% rule, that's another $750,000 we could add to your net worth at that time. what would it be today? How would I compute it today? So my years on service right now are 20. So you would do the same math and essentially I would be getting around 20,000. So then what's the why work? Why is there like

that 30 year number if you could do it at any point? So this is where I need to do more homework on my end. I need to re-look at how our retirement works towards the end there. But I do believe there's a cap as far as how many years you have to be in and what age you still have to retire at to have that accessible. Okay. Then I am going to give you a homework assignment of looking into how your pension works and how you can use it to your, like, highest and best. Of course, if you stay there forever, then you get, you know, you stay there for

40 years, you get way more. And if you stay for 20, you get way less. So where's the happy medium there with regards to how much longer you want to work, how much you enjoy your job, and all the things that you want to do? I think that's a great, a great big research project. Yes. And I think if my memory's serving me correctly, that's where the 58 comes in. And I think you have to be 58 to trigger that as far as it being available. I think that there's going to be a number of nuances that are critical to your plan here because I think there are going to be things like healthcare that come into play at, and there's going to be a cliff of when that is accessible or not. I think that there's going to be a multiplier may kick in and or it may be you're building this

asset, but you can't actually begin taking distributions from it. until 50. There could be all these different things. And that will, I think, be a very meaningful component in your plan here. 20 years in to an asset like this is no joke. If you're two years in, I wouldn't factor it at all into decision making. But at this point, you have to, I think, in a big way. And I think that based on what you just told me, this asset is probably worth close to $400,000 at least right now that is not on your balance sheet, which is also a nice way to think about it is you're really worth closer to $2 million today, I think, than $1.5 based on this. So that's pretty fun, right?

There you go on that. Scott, you're making us feel a lot better about our situation. Emily, buy those strawberries. Oh, gosh, I know. I get on my little app and, man, I analyze those numbers like you wouldn't believe. It's so silly. That's why I come back to like this whole thing of like, I don't think you have a math problem here for 10 years.

I think that whatever this cliff is for the retirement age, like you're way better than the majority of Americans right now, the vast majority of Americans right now, and probably could retire on it by just staying where you're at and then realizing that pension whenever you're able to based in your homework assignment here. Like I think you're done in a lot of ways. Now, I don't know if that's, I think there's other things you'll probably want when you sit down there here. like I don't know about college. You know, you probably want to bump those, the savings plan for your kids and those types of things or how you want to think about that. But I think you're CoastFi right now and all you need to do is cover your expenses. And that level, and if you agree with that, that level of thinking might,

might make your goal of like, oh, in 12 years I want to be traveling to Central. Well, why can't you do that now? If your job allows it, you could easily do that for a few months now while your kids are still in the house. on this front, even if that came at the expense of a few months of income or tradeoffs there. Now, again, the big issue here is if you jeopardize this pension in some way, that would be, I would begin feeling really uncomfortable here because you could do it. Yeah, no, we, it's the golden handcuffs. And we're honestly both like pretty.

Our jobs are great. They give us a lot of work life balance. We get to really be there for our kids. I don't think we need to not be working our jobs while our kids are still in school. I mean, I don't know. That would be a wild thought experiment. But we're both, we're really happy with what we're doing right now because it's just like a good, we have a lot of flexibility and freedom. Yeah.

I'm just curious about this month or two in Central America. Like, could that happen right now? I don't know. That's more where I'm jumping as like, hmm, that sounds pretty cool. It does sound so cool. I don't know if I have that. flexibility at work. Maybe not that much flexibility. Maybe two weeks. Well, two weeks is still a really fun time. So while we're talking about homework, Emily, you mentioned the R word, everybody's

favorite, R meet. I am going to send you to the bookstore to buy the I will teach you to be rich journal, no complicated math, no more procrastinating, design your rich life today, and sit down with Justin and start filling it out. You. You're just a lot. You. You're Use two different colored pens so you know that everything you write isn't red, everything he writes isn't blue, and just fill it out as, you know, over the course of time. It's not that big of a book, but it is asking you questions every single page. So look through it, read through it, read his book, listen to his show, and go through this journal and start designing your rich life.

And then look into what it costs. Look into ways to mitigate those costs. We've got credit card hacking is an excellent way to get travel for free or almost free. So you were talking about how you're not swiping things on a credit card, swipe things on a credit card and then take the cash and pay off the card so that you're earning the points now so that you can travel later for free. There's, I'm going to send you to go with less. It's a Facebook group. It's run by Amy and Tim Rutherford, Friends of Ours. and they talk about travel all over the place.

There's tons of tips for lower expense travel, house swapping. Amy and Tim travel around the world, watching people's houses, watching people's pets while they are also traveling around the world. And they get a place to stay for free because they have to feed the cat every morning. It can be a really, really awesome way. Yeah, we love that. We love that idea. That sounds.

Yeah. So there's more homework assignments for you. the pension, the journal, look into credit card. Like, there's all sorts of credit card guys out there. Scott and I don't specialize in that, but travel miles 101, I just type in credit card hacking and a bunch of people will pop up. And it's too much for me to handle all at once. So I just go there.

I'm like, hey, I need some more airline points. They're like, this is the best card for that. I need some more hotel points. This one's the best card for that. So then I open it and there you go. And I want to go back to something here. You said one of the things that I, and my brain works this way, so I apologize in advance. I can't help it, right?

You said 12 years. And I basically am like, okay, how do we make it faster? You know, here. And you said something really important on that, which was, oh, I'm really super happy with our jobs. We don't want to make changes before that. And part of my questioning, should you pay off the mortgage, is related to that item. Like, I think that if you paid off that mortgage, in two, three years, four years, however long it took, you know, with your accumulation here,

that all of a sudden, a lot of those options you were considering for 12 years from now begin to look a lot better in three or four years. And so that's my bias there. But if you're certain you are going to be, you want it back into that 12 year timeline, then that would change my bias for the mortgage and I'd invest somewhere else instead, most likely. I wouldn't put it in the savings account, but if you don't need, if you're really set on that time horizon, then you can optimize for that long-term net worth number a little bit more, put it in the, you know, stocks to real estate, be a little bit more aggressive than paying down the mortgage. So just know that that's where my mindset's coming when I'm approaching that,

consider paying off the mortgage question. Yeah. I think we just really have to nail down, yeah, that long-term picture and then free up some of this money we've been saying to saving to just. make things a little bit easier for us. I mean, kids who are adolescents are like wildly expensive. It's pretty shocking. I can't believe it every single week. And I know, I know I need to kind of let go of a few of these things I've been holding on to just for our own sanity. Also, just because of something you said earlier, you talked about the buckets that you have and there's maybe dozens of buckets.

There's so many. Yeah. Perhaps you might consider saying, okay, what is a reasonable cutoff? And I don't know what that is, but what is a cutoff that you're comfortable with? Is it five buckets that are the most important ones or 10 or it can be 15 or pick a number? And then say, okay, after that, we're going to have a nice pile of savings. And that can encompass all the other buckets. Those are all my buckets grouped together.

That might free up your thinking a little bit more so that there's one chunk of money that you can then deploy. all of the excess cash flow to the most important investment priority for a given time as you're kind of backing into that long-term goal. That might just be a help, a forcing function to say, what are the, what are the priorities here? And are we chunking the money to the priorities? And then we have plenty left over for all the other things that are also important. But I don't know, if just something for your consideration might help you direct your cash flow to the most important use going forward. I like the way you articulated that. Scott, that's how my brain works. I like to bring it down to those necessary buckets and still just

have like that free savings that maybe doesn't have as many strings attached. You're still wise about how you spend it, but it doesn't feel like you're robbing from this one to buy strawberries. Yeah, I mean, I hear that because it does feel like a moral failing of mine if I have to take from a bucket for something it wasn't intended for. And I know that that's not. a great way to go about things. And I have this weird, like, slippery slope argument in my head. Like, if we start doing this, then, oh, my God, we're going to spend $500,000 a year. And Justin tries to tell me all the time, like, we would never do that.

Like, there's nothing in us that would make that happen, but it's still hard. Well, here's how I have been handling that. I was very tight with my money. and we didn't spend on, you know, frivolous things. We didn't waste our money. And we had, I don't know if you listened to that episode that Carl and I did with Rameit. After that, we were like, okay, we're going to reframe our thinking.

And we let loose. And we didn't really let loose. I mean, I think Rameet would be like, oh, my God, you didn't learn anything for me. But we did. We learned a lot, Rameet, I promise. But our letting loose was like an extra time. $10,000 a year. Maybe $20,000 when we, you know, we just got back from that cruise that we were talking about. We had a great time. That was like $20,000. So, but in the course of our net worth, it's not that much. And we discovered that day to day, it's really not a lot of extras. But I'm stressing less about buying strawberries. I still stress a little bit. Like you walk in, you're like, $10 because it's the middle of winter. You're like, oh, we're not having strawberries this week. Frozen.

Yeah, they're frozen this week. But, you know, when you do let loose, because you have been a saver for so long, it's not going to be the crazy letting loose that you think it is. It's not going to just jump from like, you know, 75,000 this year to 500,000 next year. And what you could do to kind of combat that is check in more frequently, have a money date that you are scheduling every two weeks and we're going to look at our spending. Once a month. Once a month. So once a month with a lot of restrictions and all these buckets. So consolidate some buckets, loosen up the restrictions and then check in every two weeks.

Hey, I felt better about my spending. And look, I spent an extra $150. Well, that's no big deal. Or, hey, I really loosened up the spending. And wow, I spent $10,000 last week. Maybe I need to revisit a few more buckets. But it's, you know, testing back and forth while continuing to check in because you're both on the same path. You just have different routes to get there. So, you know, a little bit less Emily, more Justin, and then you discover that it's actually good to be more Emily than Justin. Or you discover that it's totally fine and you can loosen up a little bit. But, you know, test, what is it, A, B.

testing, Scott, that we do here at bigger pockets. A, B, test your finances. I love the idea of these tests. And then again, but it all comes back to, are we optimizing for this end state goal? And the problem you came today with is the same problem I talked to maybe 10 other people with in the last month and a half, which is I have this huge net worth. Why is it like not giving me any freedom or optionality in a way that I can feel about? That problem has to be solved. and your solutions there are make it so large that it's irrelevant, right? You withdraw one percent of $10 million. That's 100 grand a year, right?

That's one solution. That's what a lot of people, I think, sadly, end up doing. And it just comes at like a delay of not realizing this vision that is so crystal clear that you guys have earlier than you could. Other options right now include harder choices. How am I going, am I going to get, you know, do I put it in a savings account and generate simple interest. Do I pay down my mortgage, which allows me to reduce the asset base, those kinds of things? That exercise that Mindy just really had a really good point on is in coordination with that goal. And that might be as simple as this journal that Mindy referenced

from Ramit. And also as simple as, okay, what's going to happen? Like, let's project this out 10 years. And before I projected out in a financial model, let's draw it on a piece of paper. What do we want that portfolio to look like? How are we going to feel about that portfolio? And you go through 10 sheets of printer paper until you feel good about what that pie chart looks like, including your pension. And then you can begin back. Like, that's all the financial plan is. I guess one question I have what we don't what we don't have in our in the market is a brokerage account. Like everything's in retirement accounts.

And I'm hoping to do this at 52. So like I don't have access to my retirement. accounts. I mean, as a brokerage account where you would put that money, that I don't understand that totally. Let's go through a couple options here, right? So one is, if you're set on this plan, 12 years from now, then you're close enough to consider a Roth conversion ladder. So if you're not familiar with that, you should read the Mad Scientist's article on the Roth conversion. And that might be an interesting opportunity. Okay, let's go all in on this 401k. And then let's do that with, from backing into the way that we're going to convert that into the Roth and then use it to fund

early retirement because there's a way to do that. And you guys are actually really good candidates for that particular tactic. If you're committed to that 10, 12 year time horizon, if you want to get there sooner, then you need to begin, I, in my opinion, thinking about how do I allocate more of these dollars coming in to after-tax investments, which could be that after-tax brokerage account or could be more real estate or could be debt, for example, like if you got lending and tried to earn 8 to 10% interest, that's not a good boost to your current situation because it'll be highly taxed. But if you want to supplement your income in retirement, that becomes really, an early retirement, that becomes really attractive because it'll be in a lower tax

bracket at that point in time. So now you're playing games with the tax brackets. But that Roth conversion ladder is what jumps out to me in the context of your 10 to 12 year. time horizon. So basically, yeah, you put everything in a Roth, 401, you put everything in there, and then there's a way to access it earlier. You put everything into the 401k. Oh, okay. Because you're earning relatively high income right now. And then when it's time to retire early, you convert it into the Roth. And because in the first few years of your retirement, you may defer your pension, more homework here, or whatever, but you may be earning 30, 40, realizing, 30, 40, $50,000 a year in AGI.

You have a savings account to bridge that gap. And now you're withdrawing, you're converting the 401K. You're moving it into a Roth. You pay taxes when you convert it into the Roth, but not a penalty. And so there's like, it's a, it's a funky process that might work well in your situation in the context of a 10 to 12 year plan. I don't like it for a lot of folks that are like, oh, that's my plan there. But in your situation, you might, this might be a.

really actually pretty powerful tool for you. Interesting. So to tag on to that, Scott, my 401k is a Roth to begin with. You didn't say that. That's awesome. I can put up to 22,000 in that Roth annually. So if I'm understanding what you're getting at, you're saying tap that, fully fund that 22,000 because with your, the way,

you're looking at life, you're looking at you want to access this money when you retire. And so it makes the most sense to put it there investment-wise. And then you're walking away with a tax-free when you hit retirement. Almost. A couple of nuances here. One is at bigger pockets, we have a 401K and we have a Roth 401K. I contribute to my Roth 401k voluntarily. it's rare that an employer will offer a Roth 401k without also offering the 401k.

Yes, that's where the, so the 5% match goes into a 401k and then his 15% goes into the Roth 401k. That's correct. And I bet you that that is a choice that you made at some point in the past and that you could change if you decided to and you could put that into a 401k. And if you're saying, how do I maximize flexibility in the next three to five years? I wouldn't do this. I would try to stockpile after tax investments and figure out how to use those to fuel this vision sooner. But if you're like 12 years is my date, I'm going to back into that, then I would consider switching to the 401k instead of the Roth 401k because it will lower your present taxes. And then in those early years of retirement, especially if you find that deferring your pension has benefits for that. Then you can do the Roth conversion ladder and move those funds into your Roth and your low income early first few years of retirement.

Does that make sense? So this is a more complicated strategy, but this would be one way to access those. And because of your specific situation, it's actually going to be potentially a very powerful tool. Again, I don't like it in a lot of situations because it is a lot. It's like a 10 to 12 year plan that you're locking yourself into. But you guys seem relatively set on that. And in that case, then you might have massive tax advantages from an approach like this.

And with the opposite, if it's like, okay, I mean, I've never thought anything could happen sooner than 10 to 12 years. So that's interesting to think about. But if say we're like, no, we want this to be in seven years, you're saying brokerage accounts, like throw everything in for as much growth as possible. Opposite. If you want to back into your 10 to 12 year plan, throw it in for growth, maximize the number. If you want to, say, hmm, let's gamify this coming out of this show and say, this vision sounds pretty good. And maybe we can actually do a few of those years with our kids still in high school. And then the math isn't really the problem, which I think is my bias coming in. Right. Then I would change the approach entirely.

I would say, okay, well, let's consider paying off the house. Because if the house is paid off, your net worth is now $1.8 million, right? If nothing changes, you know, with all that at that point in time, plus this pension that's coming in. And you're like, that is totally congruent with going to Central America, Airbnb being a house with no mortgage or whatever for two months, going down to South or Central America, having a good old time while the tourists and Yahoo's are out clogging up the river or whatever it is that you don't like at that point in time. Right. And now we have a lot of flexibility. It's a lower net worth number. If you go with the Roth conversion or the Roth, the Roth conversion ladder that I talked about, you will have a much bigger pile of money at the end

and play a much better tax game if historical averages hold true than that approach. But you might realize your vision sooner and feel better about it if you pay off your mortgage and go and say, I'm not going to play math games here. I'm just going to make my life super simple and easy on it. And those, I think that's the big decision I think coming out of, that would be how I would be, what big decision I'd be grappling with in your shoes coming out of call. Awesome. Cool. Yay. How exciting. Thank you for that, Scott. I appreciate that. Mindy, what is your any input on that? Those are huge choices. There's like a multi-million dollar choice. I have nothing to add. That was fantastic. I only want to add the mad scientist

article is called How to Access Retirement Funds Early. If you Google that, he is the first thing that comes up. And it is an excellent article. There are several options in there. There are There's the, just paying the penalty is to access your retirement funds. I don't love that option. There's the 72T. We're going to have a show on the 72T in coming up because that is an awesome option that you can. You're taking your distributions early and it's substantially equal periodic payments. So we're going to do an episode on that as well.

But that whole article is fantastic. Definitely give that a read. I wanted to make sure that everybody listening knew about that episode or that article as well. Yeah, Scott, that was excellent advice. I think I'll, I think I need to do is I struggled to make that simple as I've been by the questions here. Anything else that we can help you guys with today, Emily and Justin? I guess this is just a random question as real estate people.

Do you have an opinion on how much emergency funds you need per rental unit? Oh, this is a great question with no right answer at all. So my right answer to this question is $15,000 for the first house plus another 10 for every house going forward. And you can start to reduce it on a per house basis and you get past a number of units. That changes dramatically if you're like, I know that I'm going to have to replace the roof on this one. Or I know I'm going to have to replace this system. I'd add those funds in on top of that or begin gradually laying them in if you think you have a reasonable time estimate. but that's just a rule of thumb.

And there's an endless debate on the forums that have what everyone believes to be the better right answer. Do some people think it should be more than that? Sure. Oh, okay. Gosh, because that's, we don't have, we don't, in the bucket, we don't have quite that much. So that's, I was going with like 10 grand a house and we're not even. That's great too. I'm more conservative, I would say than most, but not as conservative as some.

But we also have some furnace. things coming up. So I don't know. That's interesting information. Thank you. Yeah. So there's an article on the Bigger Pockets blog. It's called Estimating CapEx Real Estate. I will send you a link to it. It gives a great chart about, okay, if your roof costs $5,000, where are you getting a $5,000 roof? In Colorado, they're like $15,000 to start. But anyway, If your roof costs $5,000 and you will replace it in 25 years, that's $200 a year or $16 a month. If your roof needs to be replaced next year, then you have to save up $5,000 in one year. So you just divide it out like that.

It gives you a lot of things to think about. I do think some of these costs are a little outdated, but also these costs are going to be, you know, specific to your location because maybe you can still get a $5,000 roof somewhere. I can't, but, you know, I would love that. So it's, it gives you some things to think about and also shows you how to, how to think about it. Like the lifespan, I think is, you know, just going through quickly. I think the lifespan's pretty accurate here. So it gives you a way to think about that. I will send you a link. We will include the link in the show notes on this show as well. But, Emily, I also want to complain about the question real quick for you in the context of another question we had before we go. You have $100,000 in cash. That, what, I regard, of all of the buckets and where that's actually allocated, that is more than enough cash, in my opinion, for your guys' situation. And you do not need to accumulate any more cash. So that's, that's, I think, like, one of the, like, I'm almost sensing the bucket question there

and there of like, that you, if you have a roof problem and a medical problem and have to replace the car, you can still do that. And then you have to rebuild the cash position for the next, you know, a couple of months. That is exactly what Justin said to me. I was like, but if we have this and this and this, we won't have money. He goes, well, isn't it amazing that we have money if we had this, this and this? So, I mean, I just, I can be a bit of a worst case scenario thinker. Well, it's good. So I think, but I think comes down to the buckets. What are the priorities? And then surely there's a number, maybe it's 120. Maybe it's 200. But like, surely there's a number beyond which like the, you could, you could say, okay, yeah, for me, that makes sense.

That's so much cash that regardless of all of the bucketing work, we have enough cash. And I think that if you could do that exercise, that will, I think, free up the thinking here because then you can just, you can say, okay, something's wrong with my buckets over here. If I'm still worried about cash, because all the remaining dollars over this number surely should go to the next best investment opportunity or financial priority. And I think that that would be bottoms up is great, which is what you're doing. And also, I think you need to just view it from top down and kind of say, what's, what's a sensible limit there? Because, yeah, you did not need to accumulate more cash for your rental portfolio. If that just adds to your overall cash position, in my view, on your net worth statement.

Right. That's kind of a counter to our other homework project, which is letting go of a little bit extra money every month. Well, it's a process. It is a process. It's a journey. It's a journey. I mean, really, like, Mindy and Scott, I just am really thankful. Like, your podcast has been really impactful.

And I thought I just had it all figured out. And we were doing great. But there is so much value in doing these exercises. So I just am really thankful for both of you. You guys are doing so great. You're crushing it here. You have so many good options. And that's hard too, right?

You guys have been responsible for spurring a lot of the conversations that we've had in the last year or two. Well, thank you so much for listening. And they're good conversations. I feel like we've bonded better to. them. So thank you. We'll take you on the river if you come visit us. I would love to come visit you. A little different type of cruise than Mindy's recent one. That would be great. It'll cost you a little less too, maybe a six pack of beer. Oh, happy. Done. I always love a booze cruise. All right. Well,

Emily and Justin, this was so much fun. I have not had this much fun on a Finance Friday and I can't even remember how long. So thank you so much for trusting us with your numbers and for sharing your journey with us and our listeners. We really appreciate it. Thank you for having us. We're really thankful too. All right. And we will talk to you soon. Bye. Bye. All right. That was Emily and Justin. And Scott, that was such a great Finance Friday. I really think that the issues that they're facing are similar to what a lot of people are facing. I identified so much with them. I'm like, is this me and Carl that I'm talking to here. So it was really fun for me to be able to sit on the other side and give advice based on literally the same issues that I'm having. Yeah. And I love it. I mean, this is not like

some super high income, you know, earner that's driving something unrelatedable and reasonable. This is folks who have been working for 20 years, 15, 20 years for the government, earning, you know, less than 100K each, we work in some side jobs here and have still accumulated at a $1.5 million net worth through discipline, grind, sacrifice, and smart planning and good financial decisions. And then again, we have the middle class trap coming up where most of that wealth is trapped in a home equity balance, 401k, and then rental properties that are doing nicely, have created wealth, but are not generating a ton of usable cash flow at this point. So lots of, really interesting unlocks here. And it comes back to this theme that I continue to be, you know,

more and more convinced about, which is if you want financial freedom, it sometimes, or in many cases, perhaps most, will come at the cost of true optimization for long-term wealth. Feeling good about spending their lifestyle's expenses on $1.5 million comes with a different portfolio than what they've allocated, and feeling good about it in two and a half years, or I'm sorry, 12 years is going to be, they're going to have to make some changes to the way that they're allocating dollars from what they have done. But that doesn't discredit the wonderful progress they've made so far. These guys are wealthy, smart, and doing the right things.

And they have 12 years to figure it out. So they have plenty of time to make a slight little adjustment and get to their retirement well-funded. And I'm super excited for their journey. Yeah. I am a little bullish, more bullish. I wonder if they'll be in Central America in seven years, maybe three. We'll see. Emily and Justin, let us know.

I do think they could cut it down. All right. Scotch, we get out of here? Let's do it. That wraps up this episode of the Bigger Pockets Money podcast. Of course, he is the Scott Trench. And I am Mindy Jensen saying farewell, Snowbell. Bigger Pockets Money was created by Mindy Jensen and Scott Trench, produced by Hajar Eldas.

Editing by Exodus Media, copywriting by Nate Weintraub. And lastly, a big thank you to the Bigger Pockets team for making this show possible.